Home Finance News GM to cut spending in preparation for ‘moderate’ economic downturn

GM to cut spending in preparation for ‘moderate’ economic downturn


General Motors said it would cut spending and pare hiring in preparation for a potential economic slowdown, as the US carmaker’s second-quarter earnings missed expectations.

The Detroit-based group blamed the income fall on supply chain problems, mostly a lack of semiconductors and Covid-related lockdowns in China. Although the company expects supply disruptions to ease, GM chair and chief executive Mary Barra said there were “concerns” about economic conditions.

“We are looking at a moderate downturn rather than more severe. There are some indicators that create some uncertainty for the future,” she told analysts during a call on Tuesday.

Barra said GM was “taking proactive steps to manage costs and cash flows, including reducing discretionary spending and limiting hiring to critical needs and positions that support growth”. However, chief financial officer Paul Jacobson said the company was “not running any scenario right now where we contemplate lay-offs”.

GM previously revised down its revenue outlook for the second quarter after it was unable to deliver 95,000 vehicles due to a shortage of semiconductors. But the company was confident that production would increase in the second half of the year. It previously forecast a 25 to 30 per cent increase in semiconductor availability this year, a target Jacobson said still remained on track.

The carmaker’s “supply chain crisis . . . remains front and centre”, according to Wedbush analysts. “Any further shortfalls and stumbles could start to derail the broader EV strategy as the company heads into a pivotal year,” they wrote in a note.

GM on Tuesday offered a positive outlook for the rest of 2022, reaffirming its full-year guidance for net income between $9.6bn and $11.2bn.

That was despite a 40 per cent drop in second-quarter income to $1.7bn, down from $2.8bn in the same quarter last year, and missing analysts’ estimates for almost $1.8bn. Revenue came in at $35.8bn, up from $34.2bn in the second quarter of 2021.

“The second quarter was heavily impacted by Covid-related shutdowns and quarantines that they had in China,” Jacobson said. But “we see that as somewhat temporary” with some customer and supply chain recovery already.

Jacobson said GM continued to see “really strong” pent-up demand from its customers in North America, particularly for full-sized trucks and SUVs, “and we expect that to continue into the short and medium term”.

GM also announced it had signed new agreements to finish securing raw materials for batteries required to produce 1mn electric vehicles in North America for the next three years. LG Chem will supply cathode active material, while lithium will be provided by Livent.

Shares in the carmaker were down 2.4 per cent shortly after Wall Street’s opening bell on Tuesday.


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